In my previous blog, I covered off the favourable tax treatment of Enterprise Management Incentive Share Schemes, or EMI, through income tax and Capital Gains Tax. In part two, you will see how EMI can bring even further tax benefits through corporation tax.
You can claim a corporation tax deduction
This little piece of legislation makes EMI particularly attractive to companies – and surprisingly very few people seem to be aware of it.
Under S.1001 CTA 2009 a company may claim a corporation tax deduction during the financial year in which share options are exercised by an employee or by another person by reason of the employee’s employment. The actual calculation is then dealt with under S.1018.
The deduction available is the difference between the market value on exercise and the price paid on the exercise of the options. By way of example:
Mr Kennedy is granted options over 1,000 shares and the exercise price is equal to the market value at that date which amounts to £1 per share. On exercise 5 years later, the market value of each share has increased to £5. Therefore the difference between the market value at the date of exercise and the amount paid is £4 per share. As there are 1,000 shares under option being exercised, the total deduction is £4,000.
This just demonstrates an example on a small scale, but when you have a scheme in place with more employees and accelerated growth over a number of years, the deduction against profits can be substantial.
It is not only EMI that has such tax advantages, it is also possible to claim relief on awards such as Restricted Stock Units, Stock Options and awards of shares to employees. This deduction would be calculated in much the same way.
If you are considering setting up EMI, then it is recommended that you seek expert advice from the tax advisers at Wilkins Kennedy. Contact us to find out more.